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RBI to ask banks to furnish cap need details
The Reserve Bank of India, or RBI, is becoming cautious about banks who have plans to enter the insurance business. The central bank will ask these banks to report to it about their profits and capital requirement projections, reports CNBC-TV18.
The Reserve Bank of India, or RBI, is becoming cautious about banks who have plans to enter the insurance business. The central bank will ask these banks to report to it about their profits and capital requirement projections, reports CNBC-TV18.
Public Sector Banks, or PSBs, who intend setting up insurance companies, may have to first answer some tough questions to the RBI.
Sources say the apex bank is worried that banks may anyways need a lot of capital for meeting Basel II requirements and their own loan growth of 25%.
That is why the RBI is asking PSBs interested to get into insurance to first furnish details on their capital requirements.
For instance, Bank of Baroda has agreed to pump in Rs 100 crore of capital into its life insurance business. Analysts say that could impact the bank's capital adequacy ratio, or CAR. Currently, the bank has a CAR of 11.8%.
Anil Khandelwal, CMD, Bank Of Baroda, says "We have not received the formal notification as yet. But yes they are worried and will ask for various details. And, we will have to provide it to them."
According to sources, RBI is also asking banks to cough up details on capital raising plans, estimated profits numbers for the next two years and also estimates of credit expansion plans.
Bankers will also have to give a detailed plan on how they will fund their insurance venture, considering its capital intensive.
However, bankers say they will see their capital base reduction only by a few basis points.
For instance, Allahabad Bank has pumped in Rs 45 crore to its non-life insurance business with Japanese company Sompo. Its CAR came down marginally to 12.18 from 12.54%.
Even Indian Overseas Bank has seen a marginal decrease of 48 basis points when it deployed Rs 28 crore for its joint venture. Canara Bank is putting in Rs 150 crore of capital for its life insurance venture with HSBC and the bank's CAR will come down by by 31 basis points to 12.8% from 13.11%.
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